Aging bull market still has some life

Opinion: A correction may be coming, but no bear market yet

By

HowardGold

Columnist

Terrence Horan/MarketWatch

The great bull market of the 2010s celebrated its fifth birthday this week, as the Standard & Poor’s 500 index
SPX, -0.23%
sits near all-time highs, having gained over 200% (with dividends reinvested) since its March 2009 lows.

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But though there are legitimate concerns, I don’t think this bull is over just yet. My best guess — and predicting the market’s direction is just educated guesswork — is that we may indeed see a big correction in coming months. But I don’t expect this bull market to end until at least 2015.

The case against this bull market:

• Margin debt is at record levels, suggesting there’s froth in the market, along with anecdotal evidence of retail investors jumping back into stock trading.

• As MarketWatch’s Mark Hulbert pointed out, corporate insiders are as pessimistic as they were before the 2008 crash, as measured by the number of stock sales by officers and directors of publicly traded companies.

• Sentiment surveys Market Vane and Consensus Inc. show institutional investors are very, very bullish, in the 64%-66% range, while Citigroup’s Panic/Euphoria Model, regularly tracked by Barron’s, is solidly in euphoria territory. Investors Intelligence’s ratio of bulls to bears was recently at its highest since the 1987 stock market crash, according to Yardeni Research.

Indeed, margin debt, insider sales, and institutional investors’ sentiment are in nosebleed territory. But that could also point towards a deep correction of the kind we haven’t seen since 2011 that would shake out short-term speculation. (It may have begun already.)

Still, I think the bull market in the U.S. will continue because the underlying fundamentals support it and I don’t see anything on the horizon that would end it.

First and foremost is Federal Reserve policy. “Don’t fight the Fed,” argued the late, great Marty Zweig, and he has been proved right over time. In his book Winning on Wall Street, he advised investors to start selling stocks when the prime interest rate was raised for the second time.

We haven’t even gotten to the first federal funds rate increase, because the Fed must first taper the extraordinary bond purchases it started during the financial crisis. New Fed Chairwoman Janet Yellen has committed to wind down the latest round of “quantitative easing” (QEIII), but that will probably take most of this year.

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